Categories
Affordability Policy Political

Mythbusting: Is it True that Developers only Build for “Rich” People?

Too often, affordable housing advocates treat potential allies as adversaries. They accuse developers of being “greedy” and oppose policy reform that could significantly increase the moderate-priced infill development we desperately need.

For example, recently a very nice member of an advocacy group I work with argued that it is futile to raise allowable densities and reduce parking requirements because developers only build for “rich people,” with a sneer suggesting that “rich people” are undesirable vermin. Is that statement true? Let’s investigate.

Of 94 condominiums currently listed for sale in downtown Victoria, most (51) are priced under $600,000 and so can be considered affordable to moderate-income ($50,000-100,000 annual income) households.

Down Victoria Condominium Listings By Price Range

Price Range Number Currently Listed
Less than $300,000

1

$300,000-600,000

50

$600,000-1,000,000

30

$1,000,000+

13

 

Most of the higher priced units (over $600,000) are in new buildings, while most moderate-priced ($300,000-600,000) units are 5-15 years old. Almost all are in concrete high-rise buildings and include at least one parking space. Prices tend to be significantly lower in low-rise buildings located in residential neighborhoods. For example, in  Vic West there are currently 125 condominiums priced under $600,000, starting at $235,000 for a 758 sf unit with underground parking.

Even if new homes are initially too expensive for low-income households, building moderate-priced housing tends to increase lower-income affordability through filtering, as some occupants of lower-priced units move into the new homes, and over time as the new units depreciate in value. According to recent research, building market-price apartments causes a kind of housing musical chairs, as households move into new units; for every 100 new market-rate units built, approximately 65 units are freed up in existing buildings, including 20-40 units affordable to lower-income households.

Below are income equivalencies, assuming that living in a walkable urban neighborhood allows a household to save $5,000 annually on transportation, that wood-frame multi-family with unbundled parking is $100,000 cheaper than a downtown highrise with underground parking, and prices decline 20% after a decade. This indicates that if a $500,000 new suburban house requires a $84,000 annual income, a downtown highrise is affordable for  $68,000 income households, a condo in a wood-frame low-rise building with unbundled parking is affordable to $51,000 annual incomes, and after a decade these become affordable to 20% lower incomes.

Affordable Income Equivalencies for $500,000 Suburban Home

  Suburban Downtown With Parking Residential Neighborhood Unbundled Parking
Now $84,000 $68,000 $51,000
After a decade $68,000 $54,000 $41,000

 

Policy reforms, such as those described in Our Affordable and Inclusive Neighborhood Plan would allow developers to build more affordable homes. Let me mention another relevant example which shows that, when development densities are restricted, the lowest priced units are the first to be eliminated. In 2003 a developer proposed the Bohemia and Castana, a pair of three- and four-story mixed-use buildings with 71 residential units, a third of which were to be moderate-price rentals, in the Cook Street Village. The city rejected the proposal due to local residents’ objections to what they considered the project’s excessive size, although the area already has several four-story apartment buildings. Instead, the developer constructed a three-story building with 51 condominiums but no rentals. In a city with nearly 50,000 houses, 20 fewer moderate-priced rental units is too small to notice, but if this is typical, it indicates that community resistance reduces affordable infill housing development by 40% compared with what the market demands.

The Castana Building was planned with 20 moderate-priced rental apartments, but these required a fourth story. The three-story limit eliminated these affordable units.

Of course, some households require subsidized homes. Thanks to the good efforts of housing advocates, community organizations and government agencies, we have increased social housing development from 100-200 up to 200-400 annual units, but even this higher rates only satisfies about 10% of our total housing need. The majority of moderate-priced housing must be built by commercial developers.

This analysis indicates that, given the opportunity, developers will build moderate-priced housing that increases both moderate- and lower-income affordability. We need lots more of of such housing.

Our region grows at 4,000-6,000 new residents annually, and so needs to add 2,000-4,000 new housing units to keep up with demand and drive down prices. According to our Regional Housing Affordability Strategy, by 2038 the region needs approximately 10,000 new units priced under $875 per month, about 7,500 priced at $875-1,375, plus more than 17,000 priced above $1,375.

This analysis indicates that it is inaccurate and unfair to assume that developers only build housing for the rich. Given the opportunity, developers will build lots of moderate-priced housing in walkable urban neighborhoods, which increases affordable for lower-income households by freeing up existing lower-priced units. If we consider developers allies, we will support policy reform that increase moderate-priced development. But, as long as affordability advocates see developers as adversaries, and fail to support policies that allow more moderate-priced infill, development will continue to lag behind our regional needs, and much of the new housing added will be in sprawled, automobile-dependent areas where transportation is costly.

One reply on “Mythbusting: Is it True that Developers only Build for “Rich” People?”

To ignore the interplay between new construction and pricing is equivalent to ignoring the impact of cruise boats and tourism on the demand for housing in our area. Very simply, supply and demand drive pricing and always have. New housing supply will tend to lower housing prices across the market provided the demand is constant. If supply is less than demand, prices will be bid upward,

If supply exceeds demand, the reverse will occur until the cost of supply exceeds the return on investment and no new construction will occur.

Even in a pandemic, the supply will respond to demand (downward) as will prices. It is very simple yet many reject and blame others when it occurs.

Jim

Leave a Reply

Your email address will not be published. Required fields are marked *